Transcription

1 The POSTAL BOOK Finally, a book written in a way I can understand on issues I need to know. A POSTAL EMPLOYEE S GUIDE TO EVERYTHING BENEFITS FROM HIRING TO RETIRING

2 The Postal Book By David Fielder

3 INTRODUCTION Congratulations. If you are holding this book, you are about to step out of the darkness and take a big step towards understanding your benefits. Our goal in writing this book is to empower you to make good decisions. Most Postal employees go through their entire career not understanding the most basic aspects of their benefits. While this isn t a problem in the short-run, it can cause significant problems later. Small misunderstandings can compound into major problems over a 30-year career. One of the most important things we wanted to accomplish in putting THE POSTAL BOOK together was to make sure everyone could understand the basic concepts. The Postal Service expects you to read the 554 page employee manual AND determine what parts of it apply to you. What good is a source of information if you can t understand what it means to you? Wherever possible we have used examples from real situations we have encountered in our seminars and conventions. There aren t many situations we haven t seen, so we have a pretty good handle on how this stuff works. In the event you have a question about something we did not cover, please visit www. thepostalbook.com and submit your questions. We will do our absolute best to answer your questions and make sure those answers are included in upcoming versions of our book Postal Benefits Group Page 3

4 Postal Benefits Group is the only company specializing in retirement and benefit seminars for Postal employees. We love working with unions and presenting our information at local district meetings and state conventions. There is no charge for our services, so please let your local union officials know of our services and bring this valuable information to your area. Whether you are two years into the job or you only have two years left, we hope you find the information in THE POSTAL BOOK helpful. After reading the book, we would appreciate you introducing it to your coworkers odds are they needed the information just as badly as you did. David Fielder, President Postal Benefits Group The views expressed in this book are opinions of the author and based upon his expertise in the federal benefit plan and actual employee situations. Each employee should take time to review the information and consider their own personal situation in determining what is best for them. If an employee needs further guidance on what is best for them, please contact the author through Page Postal Benefits Group

5 Table of Contents Chapter 1: Federal Employees Group Life Insurance...9 Chapter 2: Health Insurance...19 Chapter 3: Civil Service Retirement...21 Chapter 4: FERS Employees...27 Chapter 5: Thrift Savings Plan...35 Chapter 6: Military Time and the Postal Employee...43 Chapter 7: Procedures for making Military Deposits..47 Appendicies...51 Appendix A: FEGLI Life Insurance ElectionForm...53 Appenidx B: FEGLI Designation of Beneficiary Form...61 Appendix C: FEGLI Claim for Death Benefits Form...67 Appendix D: Thrift Savings Plan Form Appendix E: TSP Designation of Beneficiary Form Postal Benefits Group Page 7

6 Chapter 1 FEDERAL EMPLOYEES GROUP LIFE INSURANCE This chapter will discuss your Federal Employees Group Life Insurance (FEGLI) Coverage. FEGLI Life Insurance is very important and we believe you need to know everything there is to know about this most important coverage. FEGLI coverage is available to all Career Employees. We will discuss all coverage available to you, and then help you determine what coverage you have by teaching you how to read the codes on your check stub. BASIC INSURANCE Basic Coverage is very easy to calculate. You can calculate your Basic Coverage using the following formula: Example 1: Basic Coverage Base Pay Round up to the next thousand Add $2,000 Total Basic Coverage Let s take a look at an example to make sure you understand how to calculate your Basic Coverage. Joe has a Base Pay of $45,300. Joe s Basic Coverage would be as follows: 2009 Postal Benefits Group Page 9

7 Example 2: Basic Coverage $45,300 (Base Pay) $46,000 (Round Up) $48,000 (Total Basic Coverage) As you get raises and Cost of Living Adjustment (COLA), your Basic Coverage will also increase. Use the same formula except insert your new base pay after the raise. Extra Benefit Your Basic Coverage has an additional feature called the Extra Benefit. The Extra Benefit is basically a bonus on your Basic Coverage for being under the age of 45. Employees who are under the age of 45 will get a multiple of their Basic Coverage depending on their age. The ages and applicable multiples are listed in table 1: Extra benefit Coverage. Table 1: Extra Benefit Coverage Here is an example of how the Extra Benefit works. Let s take Joe from our previous example who has a Basic Coverage of $48,000. Assuming Joe is 38-years-old, he is under 45 and qualifies for the Extra Benefit. Joe s Extra Benefit would be calculated by taking his Basic Pay and multiplying that amount by the Extra Benefit Factor of 1.6 from table 1. Page Postal Benefits Group

8 Example 3: Extra Benefit $48,000 (Base Pay) Multiplied by 1.6 (Extra Benefit Factor) $76,800 (Total Basic & Extra Benefit) It s important to understand that when Joe turns 39, his Extra Benefit will be reduced to 1.5 and will continue to reduce as he gets older. At the age of 45, Joe will not have an Extra Benefit. Met Life (the government s life insurance contractor) is willing to extend this additional Extra Benefit at no cost because younger employees are less likely to pass away. Postal Employees do not pay for Basic Coverage. All other divisions of the government do pay for Basic. LIVING BENEFITS ACT The Living Benefits Act was passed in It is very important if you are ever in this unfortunate situation. If you are diagnosed with the terminal illness and physicians document that you have nine months or less to live, you can access your full Basic Coverage, plus any applicable Extra Benefit AT THE TIME YOU SUBMIT DOCUMENTA- TION OF YOUR CONDITION. In other words, if you are terminally ill you can collect $50,000 or more in tax free cash BEFORE you pass away. Hardly anyone knows about this benefit; therefore, it is rarely used. This is also a great example of how important it is to understand ALL of the details concerning your Postal Benefits Postal Benefits Group Page 11

9 Option A Option A is the first of the Optional Coverages we will review. You will have elected to pay for this coverage when you were hired. Option A is a very straight forward coverage under your FEGLI. Option A provides a $10,000 Death Benefit to your beneficiaries in the event of your death. This coverage is not expensive and some employees refer to this coverage as an affordable Burial Policy. The price increases every five years, but because the coverage is so small the cost is not an issue. Option C Option C is your Family Coverage. It is another optional coverage that you elected to pay for when you are hired on with the government. Family Coverage places you as the beneficiary should something happen to your family members. Family Coverage is offered in units. An employee can take 1-5 units of Family Coverage. Each unit of Family Coverage represents $5,000 on your spouse and $2,500 on each dependent child. Let s look at an example of an employee who took five units of Family Coverage. With five units of Family Coverage, the spouse will be covered for $25,000, and each dependent child will be covered for $12,500. Page Postal Benefits Group

10 It is important to note that there is no limit to the number of dependent children that can be covered under your Family Coverage. Another important aspect of your Family Coverage is that you cannot drop part of the coverage. For example, if your children are no longer dependants, you cannot drop the coverage on your children and keep the coverage on your spouse. When it comes to Family Coverage, you either have it or you don t. Option B Option B within government Life Insurance is very popular among postal employees. This option allows an employee to pay for one to five times their Base Pay in additional Life Insurance. In most cases, this decision is made when the employee is first hired. Example 4: Option B If Joe has a $50,000 Base Pay and he takes five units of Option B, he would have an additional $250,000 of Life Insurance Coverage. The cost of this coverage is based upon his age. Below is the government and Met Life s plan for pricing (prices per thousand dollars of Insurance Coverage): Table 2: Option B Pricing Schedule Under 35 $0.03/th $250,000 cost $7.50/pd $0.04/th $250,000 cost $10.00/pd $0.06/th $250,000 cost $15.00/pd $0.09/th $250,000 cost $22.50/pd $0.14/th $250,000 cost $35.00/pd $0.28/th $250,000 cost $70.00/pd 2009 Postal Benefits Group Page 13

11 60-64 $0.60/th $250,000 cost $150.00/pd $0.72/th $250,000 cost $180.00/pd $1.20/th $250,000 cost $300.00/pd $1.80/th $250,000 cost $450.00/pd As you can see, the rates increase with the employee s age. They don t increase very fast until the age of 50, and then the price rises exponentially. The cost increases because the employee never had to get a physical exam to recieve this additional coverage. The only thing Met Life knows about you is your age, so that is the basis they use to increase coverage. As you get older, you are more likely to pass away. As a result, they charge you more and more as you age. As a general rule, if you are healthy you are better off getting your Life Insurance through a private company. This will protect you from the increases that the federal program allows. If you are unable to obtain approval from a private company, you are better off keeping the Federal Life Insurance because you would not have had the coverage otherwise. Example 5: Option B A healthy 40-year-old male would pay $21.00/month for the same $250,000 of Coverage. That price would be locked in for 20 years. Another example includes a healthy 50-year-old male who pays $52.00/month for the same $250,000. Again, the price is locked in for 20 years. Very few people in the federal government understand the details of their Life Insurance program. The cost of not understanding how the program works can be thousands of dollars in lost premiums. This can be avoided by simply learning the facts. Page Postal Benefits Group

12 If you have just learned what you are paying or about to pay for your FEGLI life insurance and would like to compare your current coverage to what you might be able to get in the private world, we suggest you visit com This company is very familiar with the FEGLI program and can not only validate and verify what coverage you have right now, but also give you quotes on up to 14 companies in the private sector. FILING A CLAIM ON YOUR POSTAL LIFE INSURANCE Order of Precedence of payment: Upon the employee s death, the government will pay benefits in this order: 1. Beneficiary on file. 2. Widow or widower. 3. The deceased s child(ren). If a guardian is not available, they will pay the child(ren) s surviving parent. If no parent exists, they will open an account in the child(ren) s name and hold the benefit until the child(ren) become 18-years-old. 4. If none of the above apply, the executor of the employee s estate will recieve the benefit. 5. Next of kin are then entitled under your home state s laws. It is very important for you to review the beneficiaries listed on your Postal Life Insurance. This is especially important if you have had a divorce or your spouse has passed away. If 2009 Postal Benefits Group Page 15

13 you would like to change your beneficiaries, please see the FEGLI Designation of Beneficiary form in Appendix B. Frequently Asked Questions How will I receive benefits? If you are receiving $5,000 or more, the government opens a money market account in your name and then sends you the checkbook. You can write a check for some or all of the balance as soon as you get the checkbook. If the benefit is less than $5,000, the government will send you a check. What documentation do I need to submit if an employee dies while they are an active employee? Those who are entitled to receive benefits will need to notify the employing office. The employing office will provide form FE-6 (FEGLI Claim for Death Benefits form found in Appendix C). The Post Office is responsible for sending the Agency Certification of Insurance Status SF2821, plus all of the original enrollment, designation of beneficiaries forms, divorce orders, etc. A copy of the death certificate must also be provided. How do I report the death of a retired employee? The employee needs to report the death to OPM by calling Upon notice of the claim, OPM will mail form Page Postal Benefits Group

14 FE-6 (FEGLI Claim for Death Benefits form found in Appendix C) to the person who reports the death. Beneficiaries (all who are entitled to receive benefits) need to complete form FE-6, plus provide a proof of death certificate. The documents should then be mailed to the following address: Office of Federal Employees Group Life Insurance (OFEGLI) P.O. Box 6512 Utica, NY Special Note: OPM will provide Agency Certification of Insurance Status to the Office of Federal Employees Group Life Insurance. I am an employee. How can I file a claim on one of my family members under my Family Coverage? If you are not sure if you have Family Coverage, please contact Postal Benefits Group and a certified specialist will review the codes on the employee s check stub to confirm coverage and the amount of benefit. If you are an employee and an insured family member dies, you must complete Parts A through C of the Statement of Claim, Opiton C- Family Life Insurance (FE-6 DEP), and a certified copy of the death certificate to your employing office. Your employing office must complete Part D (Certification of Insurance Status) and send the completed form with the death certificate to OFEGLI Postal Benefits Group Page 17

15 I am retired. How can I file a claim on my deceased spouse under my Family Coverage? You will need to refer to your retirement package to see if you elected to keep Family Coverage. If you are retired or insured as a compensationer, you must send the FE-6 DEP claim form and a certified copy of the death certificate to OPMT the following address: Retirement Operations Center P.O. Box 45 Boyers, PA OPM will complete Part D of the claim form and send the completed form with the death certificate to OFEGLI. I am an employye. How can I claim the benefit for the death of my child incapable of self-support? OFEGLI can only pay Option C Benefits for a child 22-yearsold or over if the deceased child was incapable of self-support because of a mental or physical disability that existed before s/he reached age 22. If you do not have an employing office determination of incapability of self-support on file or if the determination has expired, you must provide your employing office with the information necessary to make this determination. This determination is made by your employing office, not OFEGLI. Page Postal Benefits Group

16 Chapter 2 Health Insurance Everyone is concerned about Health insurance. The Federal Health Plan is a great plan, and it s important you know how to keep this coverage in force into retirement for both the employee and spouse. Maintaining Coverage To be eligible for health insurance in retirement, the employee must be enrolled in the Federal Health Plan for the immediate five years preceding retirement or 100%of the time they have been with the Postal Service if it is less than five years. We want to be very specific about who this pertains to and what you should do. The classic situation we see is where the Postal employee is on their spouse s health coverage because the cost was less or it was better coverage. This is no problem until the Postal employee starts to consider retirement. The Postal employee must enroll in the Federal Health Plan five years before they retire in order to carry health insurance into retirement. Surviving Spouses This one is very simple. In the event of the employee s death, the spouse can still remain on the Federal Health Plan as long as the Postal employee elected a Survivor s Benefit for the 2009 Postal Benefits Group Page 19

17 spouse at retirement. If there is not Survivor Benefit elected, the spouse will NOT be eligible for health insurance after the employee s death. WE STRONGLY SUGGEST EMPLOYEES ELECT SURVIVOR BENEFITS FOR THIS REASON UNLESS THE SPOUSE HAS AMPLE HEALTH COVERAGE FROM OTHER SOURCES. Cost Postal employees while active receive a subsidy to their Health Insurance premiums from the Postal Service. You receive this benefit for your entire career, and it represents a significant benefit. The bad part about this subsidy is you lose it when you retire and when you are looking at a reduction in income. A lot of people ask us how much Health Insurance will increase. The most accurate number can be found on the Annuity Estimate you receive from the Postal Service. If you are not far along enough in your career to receive one of these, you can estimate your Health Insurance cost at about double what you are currently paying. Page Postal Benefits Group

18 Chapter 3 Civil Service Retirement This chapter will cover those employees who were under the Civil Service Retirement System (CSRS). CSRS employees were hired prior to Jan 1, 1984 or have had at least five years of CSRS service before returning to work between 1984 and A Civil Service employee could fully retire at age 55 with at least 30 years of service. If the employee worked past the 30-year minimum, they could earn a higher annuity (pension) in retirement of 2% more per year. With 40 plus years of service, a CSRS employee could earn as much as 80% of their High 3 as a pension. The CSRS employee pays 7% of their income toward their CSRS retirement. (The total of your contributions to your CSRS retirement is listed in the bottom right hand corner of your check stub. This amount increases every year, and you can see your bi-weekly contribution to that number by looking at the Retire 1 deduction on your check stub). An easy way to determine how much your pension will be as a CSRS employee is to take your years of service, subtract two from it, and then multiply it by two. For example, if an employee has 28-years of service, you subtract two from it to get 26. Then when you double it, you get 52% Postal Benefits Group Page 21

19 Social Security CSRS employees did not pay into Social Security. Those employees who earned their 40 quarters of Social Security credits prior to their federal service could earn a social security check on top of their pension check; however, because of the Windfall Elimination Provision, their Social Security checks would be cut in half. The government viewed a CSRS employee as double dipping by getting a full pension and Social Security from the government. This provision has been challenged by CSRS employees, but as of today it is still in effect. There are employees who have Social Security credits, but not a full 40 quarters. People ask us if they should get the extra quarters to qualify. The answer is yes. If you have 37 quarters of SSI, you are not getting paid for those quarters. If you work the additional 3 quarters, it gives you 50% of a Social Security check. And that is better than nothing! Special note: If you were hired under CSRS on or after october 1, 1982, you will automatically get credit for military time served post This free credit will be taken back if you qualify for Social Security under the catch-62 reduction. If you have questions about Catch-62 and how this can affect your retirement, please visit and submit your questions. Survivor s Benefit One important choice or option for CSRS employees pertains to the Survivor Benefit. A Survivor Benefit is a benefit paid to your surviving spouse in the event of the employee s Page Postal Benefits Group

20 death. A CSRS employee can elect as much as 55% of his/ her pension check as a benefit. The employee can also select any amount smaller than 55% and will see a corresponding reduction in their pension check depending on that amount. There are instances where the employee s spouse will not need a Survivor Benefit. Maybe the spouse has a pension of his/her own and the employee wants the largest pension check possible. In this instance, the employee can elect (0) Survivor Benefit. By choosing this option, the spouse will have to sign and notarize forms within the retirement package confirming this decision. One important thing to keep in mind when electing Survivor Benefits as a CSRS employee is Health Insurance. An employee s spouse is eligible to maintain Health Insurance in retirement as long as the employee elected a Survivor Benefit for their spouse. This means if an employee does not elect a Survivor Benefit, the spouse will not be eligible for Health Coverage under the Federal Health Plan. This election will allow the spouse access to health coverage for the rest of their life in the event of the employee s death. CSRS employees who want Health Coverage for their spouse and the largest pension check possible, should elect a $3,600 annual Survivor Benefit. This election will allow the spouse to access Health Coverage. The cost will reduce the employee s pension check by $90/year. With the $3,600 benefit annually, there is enough of a check coming to the spouse to cover Health Insurance premiums. In the event of the employee s 2009 Postal Benefits Group Page 23

21 death, it is much easier on the spouse if the pension check covers the cost of the Health Insurance. This way, the spouse won t have to remember to write a check each month. THE COST OF CSRS SURVIVOR BENEFIT When you make the decision to retire you will have the choice of survivor benefit for your spouse. CSRS employees have much more flexibility in what survivor benefit they choose, so it warrants a little better understanding of how the benefit works and what the cost is to the employee s pension. First and most important, it is important to give your spouse some sort of survivor benefit in order for them to be eligible for the Federal Health Plan in the event you pass away before they do. As long as your spouse is getting a survivor benefit, they can get all the benefits of the Federal Health Plan just like a normal retiree. The decision comes down to how much survivor benefit does your spouse want and need. In most cases, the employee gives their spouse full survivor benefit which equals 55% of the employee s pension. There are not many people who understand what this survivor benefit costs and how the math works. Here s how the deduction from the employee s pension works: the first $3,600 of survivor benefit awarded costs the employee $90.00/year. Page Postal Benefits Group

22 This number is very important for employees who do not wish to provide a survivor benefit to their spouse. For example, let s say we have a Postal employee whose spouse is a school teacher. The teacher gets a nice pension and she doesn t need the survivor benefit from the Postal employee. The teacher does like the idea of having access to the Federal Health Plan because the state will not give her that same coverage in retirement. This is the perfect situation where the employee should elect $3,600 in survivor benefit for his spouse (allowing her to access the Federal Health Plan) only costing the employee $90/year. That s a small price to pay for such a large benefit in retirement. For the rest of the survivor benefit cost we will plug in some actual numbers so you can fully understand the math. Let s say our employee is entitled to a pension of $25,312. Here s how the rest of the survivor benefit is calculated: Example 7: Sample Cost of CSRS Survivor Benefit First: $3, ($90.00) The rest: ($25,312 - $3600 = $21,712) $21,712 x 10%......($2,171.00) Total Annual cost to employee s pension:... $2, or $188/mo CSRS/OFF-SET CSRS/OFFSET employees are employees who had five years of federal service prior to 1983, separated for at least one year, and 2009 Postal Benefits Group Page 25

23 then returned to federal service in 1984 or later. The government required every federal employee after 1984 to pay Social Security. Because of this requirement, CSRS/Offset was created. We will not bore you with the details, but we will try to help you understand how it affects your pension check. CSRS/ OFFSET is a CSRS employee. The only difference is CSRS/ OFFSET employees pay into Social Security while the regular CSRS employee doesn t. Example 6: CSRS/OFFSET Pension Check Before and After Age 62 For example, Joe retires at age 55 with 30-years of service as a CSRS/OFFSET employee. He will receive the full 56.25% pension that is allowed for a normal CSRS employee. When Joe turns 62 and becomes eligible for Social Security, his pension check will be offset by his Social Security check. Pension Check at age $2, Social Security Check at age $1, Retirement Income at age 62: Pension Check... $1, SSI Check... $1,000,00 Total Retirement at age $2, In a nutshell, you get the same monthly income as a regular CSRS employee. The only difference is at age 62, the income will come from two sources instead of one. Page Postal Benefits Group

24 Chapter 4 FERS EMPLOYEES The Federal Employee Retirement System (FERS) affects employees who were hired on or after January 1, The only exception to this rule applies to CSRS employees who switched from CSRS to FERS when FERS was rolled out. This chapter will explain FERS, but also how an employee can effectively use the program to retire successfully. Very few FERS employees understand how the program works, and as a result they will be in for some serious surprises when they get ready to retire. Please pay close attention to the sources of income for a FERS employee. If you understand what the sources are and how much those sources can be, you will ensure success for you and your family. Why was FERS created? While you will never find a direct answer from the government to this question, there are some obvious facts that cannot be ignored. 1. The government wanted to save money compared to the CSRS: After 30-years of service, FERS employees earn a 30% pension compared to 56.25% for a CSRS employee. Obviously, the government saved a ton of money by redesigning the program this way. 2. Social Security: FERS employees pay into Social Secu Postal Benefits Group Page 27

25 rity. About the time the FERS program was rolled out was when Social Security was underfunded. The government decided to put all federal employees in Social Security and that created four million federal payers into the Social Security System. In a nutshell, the reason for FERS is saving money for the government. The program saved so much money that the government even hired people to call CSRS employees to convince them to switch to FERS. Three pieces to the pie for FERS employees FERS employees receive their retirement income from three different sources. These three sources include the following: 1. Pension 2. Social Security 3. Thrift Savings Plan What Every Fers Employee Needs To Know When the government created the FERS program, they never intended FERS employees to get any more money than CSRS employees. All they wanted to do was take the same pie and divide it three ways. Then two of the pieces would be your responsibility, while at the same time the government reduced their obligation. What are we talking about? Let s look at an example: Page Postal Benefits Group

26 Example 8: FERS Employee with 30-years of Service Joe is going to retire after 30-years with a High 3 of $50,000. If he elects to take the full Survivor Benefit, his numbers will look something like this: Net Pension Check*...$850 Social Security... $1,200 TSP...??????? % * Net check assumes Health Insurance and taxes will deduct $275/month. The gross check is $1,125. The example above shows FERS employees what they can count on from the government during retirement. In this case, a little over $2,050/month. Any additional money the employee needs, will have to come from the Thrift Savings Plan (TSP). Many employees think the TSP is bonus money or something that is elective. Special Note: The TSP is an absolute must for FERS employees who wish to retire and maintain their same standard of living. Many Postal employees contribute 5% to their TSP because this allows them to get the full matching. In most cases, this is not enough! Just like the old rule you heard when you were young, Put 10% of your money away, and you ll be able to retire comfortably. We believe this statement can be used as the golden rule for TSP as well as long as an employee is planning on working a full 30-years. If you are like a lot of employees, you became a career employee later in life and do not plan on working 30-years. If you are one of 2009 Postal Benefits Group Page 29

27 those employees, the 10% number won t be enough because you don t have the same amount of time. To make up for lost time, you should consider contributing 15-20%. Pension The calculation for a FERS pension is pretty simple. FERS employees earn 1% for each year of service. No more, no less. Employees considering the Early Out are wondering how much more they would get if they worked another three years. Pretty easy math: The employee earns 3% more on their High 3. FERS employees must meet one of three objectives before they are eligible to retire: 1. Minimum retirement age with 30-years 2. Age 60 with at least 20-years service 3. Age 62 with at least 5-years of service Minimum Retirement Ages are based on your year of birth. Table 3: Minimum Retirement Ages provides this information: Table 3: Minimum Retirement Ages If you were born: Your MRA is: Before In and 2 months In and 4 months In and 6 months In and 8 months In and 10 months In In and 2 months In and 4 months Page Postal Benefits Group

28 In and 6 months In and 8 months In and 10 months In 1970 and after 57 Special Note: The only exception to the eligibility requirements above is in the event of an Early Out. The Early Out allows you to retire without meeting these requirements. Social Security Social Security for FERS Employees is just like any private employee. If you have earned 40 quarters, you have the right to collect SSI at age 62 or later. The longer you wait, the more the check will be. THERE ARE NO REDUCTIONS IN SSI FOR FERS EMPLOYEES. CSRS employees do see substantial reductions in their SSI, but not FERS employees. FERS Special Supplement Very few FERS employees know about this supplement, much less understand how it should be considered in their retirement decisions. Through our training, we have taken a very complex subject and boiled it down to a very basic explanation that we hope each of you can fully understand. In almost every case FERS employees are eligible to retire under the age of 62. Almost everyone knows that you don t qualify for Social Security until the age of 62. Social Security is a major part of FERS, so what is an employee supposed to 2009 Postal Benefits Group Page 31

29 do between their Minimum Retirement Age and when they turn 62? Answer: FERS Special Supplement. Think of the FERS Special Supplement as a bridge that gets you from Minimum Retirement Age to age 62 when you will qualify for Social Security. You do, however, have to qualify for the Supplement. There are two milestones that must be met in a normal retirement situation. 1. Minimum Retirement Age with 30-years of Service 2. Age 60 with 20-years of service Special Note: The exception is during an Early Out. In this instance, if the employee is retiring under an Early Out these two requirements are waived. Let s look at an example to make thing more clear. Example 9: FERS Special Supplement Joe is retiring with 30-years of service at his Minimum Retirement Age of 56. His Social Security Check at age 62 is projected to be $1,200 (from his Social Security statement). Joe s Supplement will be calculated as follows: 30-years of service Divided by 40 total years possible service Equals 75% This percentage gets applied to the Social Security check at age 62 ($1,200), and now Joe is eligible to receive $900/ month Supplement ($1,200 x 0.75=900). If Joe had only worked for 20-years, it would be 20/40 and he would get 50% of his age 62 Social Security benefit. Page Postal Benefits Group

30 When is the FERS Special Supplement Payable? This is very important if you are retiring under Early Out and you do not meet the Minimum Retirement Age and 30-years of service or age 60 with 20-years of service. As we stated before under an Early Out, you will qualify for the Supplement even though you did not meet the two normal retirement objectives. However, the Supplement will be payable starting at either your Minimum Retirement Age or age 60, whichever is next. Let s look at an example to make sure you understand how an employee retiring under an Early Out can influence the FERS Special Supplement. Example 10: Influence of Early Out on FERS Special Supplement Let s take Joe again, and he is going to retire at age 53 with 18-years of service. Remember without the Early Out he would not be eligible to retire. Joe s Minimum Retirement Age is 56. His Social Security check at age 62 is $1,200. Joe s Supplement would be 18/40 or 45%. We apply that 45% to the $1,200 and come up with $540/month Supplement. Joe won t be able to start drawing the supplement for three years (Current age 53- MRA 56). Just because you are eligible for the supplement doesn t mean you can start drawing it immediately after you retire. We ve heard stories of people who retired thinking the Supplement check started right away; they found out after the fact, it wasn t going to start until years later Postal Benefits Group Page 33

31 Take the time to understand the FERS Special Supplement and how it can affect your retirement. Don t trust Shared Services to get it right they have a long history of getting it wrong. Special Note: Taking the Supplement has no impact or penalty on employees who do not want to file for Social Security until age 66 for a higher check. Page Postal Benefits Group

32 Chapter 5 Thrift Savings Plan The Thrift Savings Plan (TSP) is the government s version of the 401k. Employees can set aside pre-taxed money and defer payment of taxes until retirment (see the Thrift Savings Plan form in Appendix D). CSRS employees receive no match from the government. FERS employees receive matching on their contributions based on the following formula: 1%: free from the government First 3%: Dollar for dollar match Next 2%: 50 cents on the dollar match There are six funds the employee can choose from within the TSP. All funds have different levels of risk and have their investment performance tied to different securities and indexes. G Fund This fund is invested in Government Bonds. This is the safe place within the TSP. The down side, however, is the performance. In August 2009, the G Fund paid 1.65%. This percentage is not even keeping up with inflation, so employees are actually losing money. F Fund The F Fund is slightly better than the G Fund. This fund is invested in high grade bonds that are not government bonds Postal Benefits Group Page 35

33 They are still safe, but with better returns than the G Fund. Year to date, the F Fund has paid 3.57%. C Fund The C Fund is the common stock fund and is invested in the S&P 500. This is the fund that lost 40% in 2008 when a lot of employees lost a lot of money. Year to date, the fund has returned 11.13%; however, the 12 month average is still %. S Fund The S Fund is invested in small cap stocks that are not in the S&P 500. Year to date, the S Fund is up 17.20%; however, the 12 month average is down %. I Fund The I Fund is invested in international stocks. The fund is up 16.99% year to date, but down % over the last 12 months. Lifecycle (L Funds) The government recently reviewed how employees were utilizing the TSP and saw that too many of them had all their money in the G Fund. Knowing that the average federal employee is not an investment manager and does not know how to invest money, the government then created the Lifecycle Funds. These funds are named with the employee s closest planned retirement year in mind. Today employees have a choice of the following L Funds: Page Postal Benefits Group

34 Table 4: Types of L Funds L G Fund 43%...C fund 27%...30% other L G Fund 27%...C fund 34%...39% other L G fund 16%...C Fund 38%...46% other L G Fund 5%...C Fund 42%...53% other We list what the G and C allocations are, so you can see the purpose of the L Funds. The longer the employee has until retirement, the more money they have invested in the C and other risky funds. The L2010 is almost half in the G Fund and is very conservative. The government went to the big banks on Wall Street and got their advice on how employees should invest their money based on their options within the TSP and how long they had to work. Now employees can pick the fund closest to their retirement date and have their TSP allocated across all the funds, as if a Wall Street bank was managing it for them. One nice feature of the L Fund is that they re-allocate every quarter. Because every quarter the employee is closer to retirement, the investment gets a little safer each quarter. The best benefit of this feature for employees is it acts as an auto pilot. With the L Fund, the employee can turn it on and forget about it. The allocation automatically adjusts every quarter. If an employee had their money in the L2010 account in 2008, they would have only lost 3.03%. If they were 2009 Postal Benefits Group Page 37

35 in the 2020, they would ve only lost 9.22% versus the 19.89% they would ve lost if they were in the C Fund last year. These numbers are validation the L Funds work. As a company, we suggest employees use the L funds if they have no strategy of their own. You can learn more about the TSP by visiting Accessing Funds in the TSP Because the TSP is pre-tax, the government puts limitations on how you can access that money with or without paying taxes. It s important to understand these options in the event you need these funds. Cashing Out An employee can withdraw cash from their TSP only with an acceptable hardship: 1. Documented Negative Cash-Flow: The employee has to fill out a worksheet to document their cash-flow to qualify 2. Medical Expenses 3. Legal Costs due to Divorce or Separation 4. Personal Property Loss: Home repairs that are necessary Special Note about Taxes: All funds the employee receives are after taxes have been taken out. If the employee was under 59.5-years of age, they will also pay a 10% penalty for early withdrawal. Page Postal Benefits Group

36 Age Based In-Service Withdrawal Very few employees know about this fantastic option. If an active employee is 59.5-years or older (CSRS or FERS), they can rollover their TSP to another qualified annuity with no tax consequences or penalties. At the time of the transfer, the employee may elect some of their TSP funds to go directly into their checking or savings account (TSP-75 form is used for this request). We have met with a lot of employees who with a few thousand from their TSP have been able to pay off vehicles and other obligations. Most of them with the personal loans paid off are able to justify retirement much sooner and much easier. Special Note: FERS employees who are 59.5 and older who elect to take advantage of rolling over their TSP to a private IRA or annuity need to know they will still receive full matching on any future contributions they make to the TSP. There are FERS Employees who are 59.5 or older who still plan to work two or three more years. Those employees can transfer their TSP and still accumulate more funds in their TSP until they retire and then transfer the difference out at that time. If you have any questions about this option, please visit After retirement Once the employee retires, they can also rollover their TSP at any age to a qualified plan. The form that is used is the TSP Postal Benefits Group Page 39

37 If the employee chooses to put money directly in their account and they are under 59.5-years of age, they will be subject to tax and the 10% penalty. Should You Annuitize Your Tsp And Convert It To Monthly Payments? This is a choice that a lot of Postal employees exercise because they aren t aware of their options and because it is the only option people in Shared Services are allowed to support during your pre-retirement counseling sessions. The choice to annuitize your TSP has one benefit and several consequences. The only benefit to this option is you can have the assurance of a check each month in retirement and never worry about it changing or outliving your money. While these are strong benefits, they should be weighed against the consequences. 1. Your money no longer grows: Once you annuitize the TSP funds, the government applies an interest rate to calculate your payments. If you run an annuitization quote today, the rate of interest they use in calculating your monthly payments is 3.875%. There are rates much higher in the private sector that are just as safe. 2. You no longer have access to the cash: When you annuitize, you are handing over your pile of cash in exchange for the monthly payments. If later down the road you need a lump sum of cash, you will not have that option. 3. Your heirs are disinherited: When you annuitize your TSP you can elect a survivor benefit for your spouse in the event of your death. Once the spouse passes away, your children or other family members will receive Page Postal Benefits Group

38 nothing. This consequence is huge in situations where there is a large TSP balance and the premature deaths of the employee and spouse. When we learned of these consequences, we took a lot of time to research private options that would offer protection and safety for both the employee and their heirs. There are plenty of options available and most people choose to move their TSP balance into these better performing areas when they hear the significant advantages Another Thought On Leaving Your Tsp With The Government Many Postal employees retire and leave their TSP with the government. Many of these retirees are CSRS and have a much bigger pension than FERS employees, so they didn t need the money right away. What easier option than to just leave the money where it is, right? Well, there are some things that we feel Postal employees need to understand when they choose to leave their TSP with the government. Take a few minutes and hear us out on this because we feel it is very important for Postal employees to understand. Almost everyone knows of or has seen the LLVs (Postal delivery vehicles) around town. If you ve ever looked inside one of those things or driven one, you will see they are the most basic of basic vehicles. Certainly the government 2009 Postal Benefits Group Page 41

39 could ve spent more on these vehicles to make the job a little easier for the drivers, but they didn t. We want you to notice the government s attitude because that was and is being used for the TSP. The government is not interested in giving their employees any more than the basics on just about anything. Yes, there are always options to make things better for employees; however, the government looks at these options as unnecessary expenses. Remember, they do not have to compete with anyone for your business. All employees should take advantage of the many options available to them in the private market. To use our previous example of the Postal vehicle: if you could have the choice of a LLV or a Cadillac to deliver the mail, which would you chose? We have reviewed many of the IRAs and annuities available to Postal employees and have found options that are just as attractive as a Cadillac to what the TSP offers. For many employees the TSP represents a large portion of their retirement savings. Don t assume the TSP is the best option available. Do some research and get advice from people who understand and know the TSP s options, so you can make the decision that is best for you and your family. If you would like more information about your options for your TSP, please visit our website at Page Postal Benefits Group

40 Chapter 6 MILITARY TIME AND THE POSTAL EM- PLOYEE There are thousands of Postal employees who had prior military time. One of the reasons for this is the preferential treatment of veterans on the entrance exam. While the Post Office gives veterans a preference upon entrance, they are hurting them by not fully explaining their options on buying military time as soon as they are hired by the Post Office. CSRS CSRS employees who had prior military time that was post 1956 can buy their time by paying 7% of what they made the 1 st year in the military and for each additional year in the military. An example will make the math easier to understand: Example 10: Buying Military Time Military Service Pay: $10, Buy back: $700 Military Service Pay: $11, Buy back: $770 This math continues for each year the employee chooses to pay. There is an additional factor of interest that has to be included. The government charges different amounts of interest for each year of buy back because they lost the opportunity to invest your contributions during those years Postal Benefits Group Page 43

41 A great resource for calculating and estimating what your buy back would be can be found at You can input your earnings and years of service and come up with an estimate of deposit. SHOULD YOU BUY THE TIME? The question of whether to buy back or not really comes down to looking at the cost and the benefit of the purchase. An example of a real employee we spoke with this year will help you understand the choices. Example 11: The Choice to Buy Military Time The employee had four years of military service and the buy back amount he had to pay was about $7,000. He wasn t sure if it would be worth it to buy the time. For a CSRS employee, each year they buy is worth 2% more on their pension. In this employee s situation, he would recieve another $4,000 a year in pension by paying the one time fee of $7,000. In just two years of retirement, he would recover his investment and then some. We advised him to buy the time immediately. FERS AND MILITARY TIME: FERS employees have a pretty easy decision when buying their military time. THEY SHOULD ALWAYS BUY IT, AND BUY IT AS QUICKLY AS POSSIBLE. The government only charges a FERS employee 3% of pay in the military to buy their time. That s only $300 for every $10,000 earned in the military. As long as the employee did not fully retire from the military, it is in their best interest to Page Postal Benefits Group

42 buy whatever years they have and have that time added to their creditable service. WHEN TO BUY THE TIME: This is the area where we get a bit frustrated. A FERS employee should buy their military time as early as possible. In an ideal situation, the employee should buy their time in the first two years of working for the Postal Service. If they buy the time in the first two years, they will be exempt from any interest. The difference in buying the time in the first two years and waiting to do this before retirement is thousands of dollars. The frustrating aspect of this is the Postal Service knows if the employee had prior military service because they are giving the preference on the entrance exam. How hard would it be for them to add one document addressing the choices veterans have regarding buying their military time? To sum it up, veterans should buy their time as early as possible. This not only limits applicable interest, but also gives the employee a longer time to pay for the time which will allow for lower payments coming out of their checks. See chapter 7 for instructions on how to buy your military time Postal Benefits Group Page 45

43 Chapter 7 Procedures for Making Military Deposits POST-56 MILITARY SERVICE The time to consider your deposit option is now the earlier in your civilian career is better. Military service is generally creditable as federal service, provided it was active duty and the employee received an honorable discharge. If your military service was performed prior to 1957, it is included in your Service Computation Date and in the computation of your annuity. Beginning January 1, 1957, military service became subject to Social Security. A 1982 change in the law states that CSRS employees hired after September 30, 1982 will receive Post-56 Military Service credit only if they make a deposit covering the service. CSRS employees hired before October 1, 1982 can receive credit for Post-56 Military Service without making a deposit, but will be subject to the elimination of this service if they become eligible for Social Security benefits at age 62. At this time, their annuity will be recomputed without the Post- 56 Military Service Postal Benefits Group Page 47

44 Example 12: Post-56 Military Service Sam had four years of military service covered by CSRS when he began his Department of Education career on May When he retired (with 34-years of civilian service, plus his military service), he did not meet eligibility requirements for Social Security since he only had 20 quarters of coverage. He elected not to make a Post- 56 Military deposit, believing he would not work after retirement. At age 62 when Social Security reviewed his records, he had worked and was now eligible for Social Security. Since he had not made a deposit prior to retirement, his Department of Education annuity will be recalculated with only the 34-years of civilian service. Under CSRS rules, Post-56 Military Service deposits will be 7% of the basic military pay earned during the period covered by the deposit, plus interest which is figured at a variable interest rate. Employees may have more than one period of military service covered by this rule and elect to pay a deposit for all, some, or none of the periods. FERS Military service that would be creditable under CSRS is also creditable under FERS, except all Post-56 Military Service must be covered under a deposit to receive credit under FERS for any purpose. Under FERS rules, Post-56 Military deposits will be 3% of the basic military pay earned during the period covered, plus interest which is figured at a variable interest rate. Page Postal Benefits Group

45 If you transferred into FERS retirement system from CSRS, determination of whether military service is creditable under FERS rules or CSRS rules will depend on how many years of creditable CSRS service you had prior to transferring. If you had less than five years of CSRS service, all service is treated under FERS rules. If you had five years or more of CSRS service, this service plus your military service is treated under CSRS rules. REQUIRED ACTIONS Employees must send a written request (Form RI 20-97) to the appropriate DFAS Center for their branch of service. You must use a separate request for each branch of service with a copy of the appropriate DD214(s) attached to each request. Form RI may be requested at the following website: Addresses for the appropriate DFAS office may be obtained at the following website: After completion of the employee portion of the RI 20-97, it should be mailed or faxed to the appropriate address/fax number. DFAS will return the RI to the employee, who then in turn should submit it to their HR Office for the computation of the required deposit Postal Benefits Group Page 49

46 Once the deposit computation is complete, you will be given the options available for payment. Keep in mind, the interest will continue to accrue while payments are being made. Deposits must be paid in full prior to retirement. Page Postal Benefits Group

47 Appendicies Appendix A: FEGLI Life Insurance Election Form Appendix B: FEGLI Designation of Beneficiary Form Appendix C: FEGLI Claim for Death Benefits Form Appendix D: Thrift Savings Plan Form Appenidx E: TSP Designation of Beneficiary Form Special note: if you need your own copies of the forms referenced here, you can find them all at by searching for the form number as it appears on the forms enclosed Postal Benefits Group Page 51

48 Appendix A FEGLI Life Insurance Election Form 2009 Postal Benefits Group Page 53

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54 Appendix B: FEGLI Designation of Beneficiary Form 2009 Postal Benefits Group Page 61

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